New SEBI rules could push global ETF premiums even higher, warns advisory

Overseas ETFs are currently trading at higher premiums than their net asset values, prompting a warning from Mirae Asset. The mutual fund cautions that the gap between the ETF prices and their actual underlying values may increase due to recent changes in SEBI’s trading rules.

And the market price of more than 20% of the NAV is not limited to only one such global ETF; it is widespread among most other overseas ETFs trading on exchanges.

Why This Advisory Landed Now

The root problem is not new. SEBI’s curbs on fresh overseas investment limits had already forced Mirae Asset Investment Managers (India) to pause direct subscriptions into certain overseas ETF schemes, a restriction first flagged by the fund house back in January 2024.

The Securities and Exchange Board of India (SEBI) restricts fund houses from investing overseas without any upper limits.

The SEBI maximum limits on foreign securities investments by fund houses were initially set in November 2020 and later revised in June 2021. Each Indian mutual fund house can invest up to $1 billion each, adhering to the overall industry cap of $7 billion set by SEBI.

For overseas ETFs too, there are limits. Mutual Funds can make investments in overseas Exchange Traded Funds (ETFs) subject to a maximum of US $300 million per mutual fund, within the overall industry limit of US $1 billion. So practically, all funds and ETFs routing Indian investors’ money into global markets are off the screen.

ETF units are continuously created and redeemed based on investor demand. However, because of the cap, market makers are not able to freely create new ETF units. Without that supply of new ETF units, the process that normally keeps an ETF’s exchange price aligned to its NAV stops working properly.

So What Did SEBI Actually Change?

Here is the part that matters most for investors right now. Under the earlier framework, price deviation from NAV was effectively capped at around 20 percent.

But SEBI’s revised ETF price-band rules, covering base price, price bands, call auctions and close-out procedures, kicked in from September 7, 2026. The new bands are pegged to the previous day’s closing market price, not directly to NAV.

That single shift changes the math. If an ETF is already trading above its fair value, that premium can now compound session after session, with nothing forcing it back toward the 20 percent ceiling that used to apply.

Example

Here’s how it may play out: Let’s assume a scenario where a global ETF has a net asset value (NAV) of Rs 270 and a market price of Rs 330; an investor faces a premium of Rs 60 per unit, equating to a 22% premium. This premium could rise over time, influenced by factors related to SEBI’s regulations rather than changes in the underlying index.

The premium may not last forever too. Overnight, the premiums may crash, pulling down the returns for the investors.

What Should Investors Actually Do?

The fund house’s advice is fairly direct. Check the ETF’s market price against its indicative NAV (iNAV) before placing any order; this is published live on the website of fund houses. Avoid buying units at a steep premium to that iNAV.

And keep in mind that premiums do not last forever; when they shrink back toward NAV, investors holding at inflated prices could see losses even if the overseas index or securities themselves have not fallen at all.

From September 7, 2026, the base price mechanism is transitioning from the current approach to a T-1 closing NAV basis. This change aims to align the base price more closely with the fund’s actual underlying value instead of relying on a market-price-derived reference.

The advisory comes directly from Mirae Asset Investment Managers, addressed to investors in its overseas ETF schemes.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should assess the risks and consult a qualified financial advisor before making investment decisions.